Thursday, September 24, 2009

Stopped Clocks

Bob Beckman (pic) was an entertainer in the retail financial markets. He was superb. So superb that he made a fortune from writing investment books, columns, and a subscription newsletter. He even had a regular show on LBC radio.

Bob specialised in wild-eyed prophesies of financial doom. For example, in 1983 he came out with an apocalyptic tome entitled The Downwave: Surviving the Second Great Depression. Which, among other things, said “By 1987 there will be no real residential housing market in Britain for the owner occupier. Some houses will be unsaleable at any price.”

Pretty scary stuff. Except of course anyone who'd followed his advice and sold up would have missed out on one of the biggest house price booms ever.

No matter, because the book sold 500,000 copies, and helped keep Mr B in the glitzy lifesyle to which he'd become accustomed.

But the thing about Bob was that every few years - like say in 1987 -the financial markets would take a tumble, and suddenly it would seem his scary armageddon views had been born out. At which point he'd pop up on the telly and all over the press, telling us that he'd been right all along, and that those complacent establishment guys who'd laughed at him had been plumb wrong, and that this proved he was much smarter than any of them. Everyone would nod gravely, and beg him to tell us just how much more monstrously awful things were going to get over coming years.

Except of course, they never did. After every terminal crisis, the world showed an irritating ability to pick itself up, dust itself off, and start all over again.

Bob? He went right on calling the Second Great Depression, as if nothing had changed.

You will immediately recognise stopped clock syndrome: even a stopped Beckman is right twice a day (although confusingly, a clock that runs backwards is right four times a day).

He now writes an economics column for struggling Labour organ the New Statesman, and he's been busy bigging up his own Beckman-style prescience in calling - yes - the Second Great Depression.

He reckons he was the only member of the MPC who saw the crash coming, and the only one who had the guts to stand up to the iron fist of Governor King. The other committee members were too dim and/or too timid to challenge the complacent nonsense coming from Bank officials.

Evidence?

He points out that he was the first member of the MPC to vote for an interest rate cut, way back in October 2007. And in September 2008, just days before the Lehman collapse, he alone voted for a cut. What could be clearer? The crash happened. He was proved right, and those other idiots were proved 100% wrong.

Reading the MPC minutes, we can certainly see that he was always the one arguing for lower interest rates, sometimes literally in a minority of one. But given that the Bank is charged with hitting a 2% inflation target, and given that for most of 2008, inflation was well above that target, you have to ask why? What was going on in his head?

The fact is that Blanchflower only ever voted for one interest rate increase in his entire tenure on the MPC. And that was in spite of the fact that his first year coincided with the final mad inflation of our gigantic financial bubble during 2006-07.

There's a good case for saying the Bank was far too lax during that period, and higher rates then would have better contained the bubble and saved a lot of pain now. But at least Blanchflower's fellow committee members did push through an increase of 1.25% between August 2006 and July 2007, whereas he mainly sat on his hands - even voting for a cut at one point (March 2007).

In reality, Blanchflower is another stopped clock. Like the left in general, he believes that a Second Great Depression is never far away, and that all that stands between us and a return to mass unemployment is government intervention. Fundamentally, markets are not to be trusted. As for inflation, he believes that saving jobs should always take priority over saving the value of our money (Zim and Weimar apart, obviously).

"If spending cuts are made too early and the monetary and fiscal stimuli are withdrawn, unemployment could easily reach four million. If ... there are substantial cuts in public spending in 2010, as proposed by some in the Conservative Party, five million unemployed or more is not inconceivable. Crime will inevitably rise and there will be widespread social unrest if this happens...Mr Osborne, I really don't know which economists are advising you on this brilliant strategy to increase unemployment, but feel free to give me a call. Unemployment makes voters unhappy."

Ah yes, happiness, happiness... the greatest gift that I possess.

So do you reckon George should give him a ring?

Hmm. How would Blanch tackle the ticklish issue of funding our ballooning deficit? He is silent, but his attitude to interest rates and inflation while on the MPC probably gives us a clue.

He's also silent on the question of how we're going to put our economy back together again. It's all very well borrowing to prop up employment, but at some stage we have to earn our way back to sustainable prosperity. Given that we've lost 4-6% of our GDP pretty well permanently.

Unless, of course, George secretly plans to construct a Bennite fortress Britain.

Either way, when it comes to entertainment, I'm afraid Blanchflower is not exactly in Mr B's league - check out this NS vid (total views so far... 33):

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